Penney's shares are down 60% since we warned about trouble with its turnaround.
Matthew Staver/Bloomberg News

Johnson began with the backing of Penney's two largest shareholders: Pershing Square Capital Management and Vornado Realty Trust, which owned a third of the stock and held board seats. Last week, Vornado sold 40% of its stake and is likely to sell the rest. Johnson has already restored discounting, but Penney has cut 19,000 jobs, or 14% of the total, since the start of 2012.

The board is said to be giving Johnson's plan another year to work, and seems stuck with it in the way that passengers are stuck on a train hurtling toward a collision. "It's hard to see how a new leader can right the ship, given the massive changes being implemented, especially the 'store-in-a-store' concept, which is behind schedule," says David Berman, a hedge-fund manager and retailing expert who has derided Penney's overhaul since day one.

The stock market now values Penney at $3.3 billion, down from almost $8 billion last year. It is hard to see why it might be worth more, given the lack of buyers for a retailer with a national footprint and ongoing asset sales by rivals like
Sears HoldingsSHLD 1.2212306247064348%Sears Holdings Corp.U.S.: NasdaqUSD21.55
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Volume (Delayed 15m)
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Volume (Delayed 15m)
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P/E Ratio
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2297272962.1109
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148985More quote details and news »SHLDinYour ValueYour ChangeShort position
(SHLD).

Penney owns 426 of its 1,100 stores and has cheap leases on the rest, but Vornado's willingness to cut and run calls their value into question.

That, in turn, is creating concerns about liquidity. Penney has $930 million in cash and a $1.85 billion credit line. If same-store sales fall another 10% in the first quarter, Penney will burn through $400 million in cash, says J.P. Morgan. Hedge-fund investor Berman foresees "vendor panic over a steadily worse balance sheet."

Rick Snyder, an analyst at Maxim Group, thinks Penney's real estate is worth roughly $50 per square foot. That would not be enough to cover Penney's $2.9 billion of debt. Snyder's price target on the stock is $10, about a third lower than it fetched last week.